Strategic Planning and

Implementation
Chapter 2: The External Environment:
Opportunities, Threats,
Industry Competition and
Competitor Analysis
The External Environment
External Environment Analysis

• Opportunity
– General environment condition that, if exploited, helps a
company achieve strategic competitiveness

• Threat
– General environment condition that may hinder a
company's efforts to achieve strategic competitiveness
External Environment Analysis (Cont’d)

• 4 components of External Environment Analysis

– Scanning
– Monitoring
– Forecasting
– Assessing
 Segments of the General Environment

• 7 Segments
– Demographic
– Economic
– Political/Legal
– Sociocultural
– Technological
– Global
– Physical Environment
Industry Environment Analysis

• Industry
– Definition: Group of firms producing products that are
close substitutes
– Industry environment, in comparison to the general
environment, has more direct effect of firm’s
• Strategic competitiveness and
• Above-average returns
– Intensity of industry competition and industry’s profit
potential are a function of 5 forces (See next slide)
The Five Forces of Competition Model
Industry Environment Analysis (Cont’d)

• Porter’s 5 Forces
– 1/5: New entrants
• Can threaten market share of existing competitors
• May bring additional production capacity
• Function of two factors
– 1: Barriers to entry
» Economies of scale
» Product differentiation
» Capital requirements
» Switching costs
» Access to distribution channels
» Cost disadvantages independent of scale
» Gov’t policy
– 2: Expected retaliation
Strategic Groups

• Strategic Groups
– Set of firms emphasizing similar strategic dimensions to
use a similar strategy
– Implications
• Because firms within a group compete (offer similar products)
rivalry can be intense – the greater the rivalry the greater the
threat to each firm’s profitability
• Strengths of the 5 forces differs across strategic groups
• The closer the strategic groups, in terms of strategy, the
greater the likelihood of rivalry
 Competitor Analysis

• Competitor analysis and organization response:

– What drives competitors
• Shown by organization's future objectives
– What the competitor is doing and can do
• Revealed in organization's current strategy
– What the competitor believes about the industry
• Shown in organization's assumptions
– What the competitor’s capabilities are
• Shown by organization's strengths and weaknesses
Competitor Analysis Components
 Competitor Analysis (Cont’d)

• Competitor intelligence
– Set of data and information the firm gathers to better
understand and anticipate competitors' objectives,
strategies, assumptions, and capabilities
 Intelligence Collection (Cont’d)

• Follow ethical practices when gathering competitor

intelligence
– Obtain public information
– Attend trade fairs and shows and collect brochures, view
exhibits, listen to their discussions
• Some practices may be legal, but unethical
• Unethical tactics can include
– Blackmail
– Trespassing
– Eavesdropping
– Stealing drawings, samples or documents